China said Thursday a police operation to free hostages in the restive Xinjiang region had left seven "terrorists" dead, but an exile group described the incident as a protest by local Uighurs.

The incident is the latest reported violent confrontation in the region -- home to roughly nine million mostly Muslim Uighurs who have long bristled under Chinese rule -- since three deadly attacks in July left dozens dead.

The Xinjiang government said on its official Twitter-like weibo account that a "violent terrorist group" kidnapped two people in the northwestern region's remote Pishan county late Wednesday night, prompting a stand-off with police.

During the stand-off, the kidnappers killed one police officer and wounded another. Police opened fire and killed seven of the suspects, and wounded and arrested four others, it added.

The two hostages were subsequently rescued, it said, without providing further details. It did not say whether the kidnappers were Uighurs.

But Dilxat Raxit, spokesman for the World Uighur Congress, an exile group, described the incident as a protest by local Uighurs prompted by mounting discontent over a police crackdown and religious repression in the area.

He said seven Uighurs were "publicly" shot dead, three seriously wounded, and another four lightly hurt, and added authorities were confiscating people's mobile phones on Thursday.

"The local government recently started a 'strike hard' campaign, which resulted in the disappearances of several people. They were taken away by armed forces, who refused to say where they were," he added.

"The local government has also restricted local religious activities."

Police in Pishan, in mountainous southwestern Xinjiang, and the Xinjiang government refused to comment when contacted by AFP, and the local government was not immediately available for comment.

Late on Thursday, Raxit contacted AFP to report that police had arrested 33 Uighurs, including five women, and barred gatherings of more than "three to five" Uighurs in one place "to prevent further mass protest".

Police contacted by AFP said they knew nothing about the arrests.

Xinjiang -- a resource-rich region that borders eight countries -- has been the scene of sporadic bouts of violence, much of which has been blamed by Beijing on the "three forces" of extremism, separatism and terrorism.

But some experts doubt terror cells operate in Xinjiang, where Turkic-speaking Uighurs practice a moderate form of Islam.

They say the violence stems from discontent among Uighurs, many of whom accuse authorities of religious and political oppression, and resent the influx of the majority Han Chinese into Xinjiang.

The official Xinhua news agency said there was speculation Wednesday's incident was linked to "a surge in religious extremism in the Muslim ethnic Uighur-denominated area that borders the Kashmir region controlled by Pakistan and India".

It said police reported another kidnapping earlier this month in Pishan, a county some 1,800 kilometres (1,100 miles) from the regional capital Urumqi, where Han Chinese account for less than two percent of the population.

The report said "extremists kidnapped and brutally murdered a Uighur man for drinking alcohol, an act considered taboo by Muslims."

In July, Xinjiang was hit by three deadly assaults that left dozens of people dead and prompted authorities to dispatch an elite police counter-terrorism unit to the region in a fresh crackdown.

The first assault took place on July 18 on a police station in the remote city of Hotan, near Pishan. Authorities called it a "terrorist attack" while exiled activists said it was an outburst of anger by ordinary people.

The other attacks happened in the ancient Silk Road city of Kashgar less than two weeks later.

Four Uighurs were subsequently sentenced to death for their role in the attacks.